Avoiding COVID-19 Related Foreclosures by Implementing Cost-Effective Mortgage Modifications for Federally-Backed Loans
54 Pages Posted: 26 May 2021
Date Written: March 25, 2021
Millions of homeowners are having difficulty paying their mortgage because of the COVID-19 emergency, and those suffering from a sustained income loss will be unable to afford their original monthly payments. Research based on post-Great Recession defaults provide compelling evidence that a mortgage modification that delivers substantial payment reduction is the right tool to keep borrowers in their home and avoid foreclosures. Based on this research, I establish the steps of an “optimized” mortgage modification waterfall that offers substantial payment reduction to the borrower while minimizing the financial impact on the lender. I then compare the optimized waterfall to the GSE, FHA, and VA mortgage modification options and provide specific recommendations that, if implemented, would allow the Federal agencies to offer deeper payment reductions and broaden the availability to modifications to help more homeowners in need while minimizing the cost to lenders.
Keywords: mortgage, mortgage default, debt relief, homeowners
JEL Classification: G51
Suggested Citation: Suggested Citation